November News Update
Craig Carlini, CPA – email@example.com
Dave Albert, CPA – firstname.lastname@example.org
Lisa Hahn, CPA – email@example.com
Robert Tempchin, CPA – firstname.lastname@example.org
Vikita Shah, EA – email@example.com
Rubino welcomes you to this inaugural tax update newsletter. This newsletter highlights some of the most recent federal and state tax updates.
Federal Tax Updates
Supreme Court to rule on FBAR penalty case
On November 2, 2022, the Supreme Court heard oral arguments in a case involving a long standing FBAR ruling to decide if the penalty for failure to report foreign financial accounts should be levied on a per-account basis or per FBAR form. The dispute arises due to conflicting decisions in the US Courts. The US Court of Appeals of the Fifth Circuit [(in case of United States v. Bittner 19 F.4th 734 (5th Cir. 2021)] held that a separate violation occurred for each foreign account not timely reported on an FBAR. The Ninth Circuit decided (in the case of United States v. Boyd, 991 F. 3d 1077) that the penalty should apply on a per-filing basis. Every US Citizen and resident is required to file the FBAR form if they have a financial interest or signature authority over any financial account and the aggregate value of all accounts exceeds $10,000 at any time during the calendar year. Non-compliance leads to a levy of penalties by the IRS. This Supreme Court ruling is expected to bring greater clarity for taxpayers on how the penalties will be assessed and levied in non-willful cases.
Inflation Reduction Act – availability of three energy tax credits
On August 16, 2022, The Inflation Reduction Act was signed into law.
• The Act introduced the Energy Efficient Home Improvement Credit. For 2022, this credit operates similar to the Nonbusiness Energy Property Credit which expired at the end of 2021. For 2022, the credit amount is 10% of costs up to $500 (a lifetime limit) for purchases of certain types of energy-efficient equipment for the principal residence that are installed in 2022. Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. The credit is capped at $1,200 annually and runs through 2023.
• Another credit that was extended through 2034 is the Residential Clean Energy Credit (formerly known as Residential Energy Efficient Property Credit). The credit amount is 30% of the cost of qualifying property installed through 2032. The amount decreases to 26% in 2033 and 22% in 2034.
• The Clean Vehicle Credit (formerly known as Qualified Plug-In Electric Drive Motor Vehicle Credit) was extended through 2032 and a maximum credit of $7,500 is available if the taxpayer meets the rather technical qualifications for claiming the credit.
• The Act also includes a 15% minimum tax on certain corporations and a 1% excise tax on corporate share buybacks of a publicly traded corporation.
IRS released draft 2022 Partnership Instructions for Schedules K-2 and K-3 (Form 1065) and 2022 Partner’s Instructions for Schedule K-3
On October 25, 2022, the IRS posted draft 2022 Partnership Instructions for Schedules K-2 and K-3 form 1065 and 2022 Partner’s instructions for Sch K-3. The instructions provide further guidance and examples concerning the information a domestic partnership with solely domestic activity may be required to report to a partner. These instructions add a new exception for filing and furnishing Schedules K-2 and K-3 and clarify the reporting with respect to Forms 5471, 8621, country codes, capital gains etc. The instructions include new guidance on using the information on Schedule K-3 to report foreign tax redeterminations on Forms 1116 and 1118.
State Tax Updates
Taxability of Student Loan Forgiveness
Earlier in the year, student loan debt forgiveness of up to $20,000 was announced for Pell Grant recipients with loans held by the Department of Education, and up to $10,000 for non-Pell Grant recipients. The discharge of student loan debt will be exempt from federal gross taxable income from January 1, 2021, through December 31, 2025.
Note that currently, the discharge of loans under the student loan forgiveness plan has been halted in view of the Federal Court of Appeals decision (Nebraska v. Biden, 22-3179, 8th US Circuit Court of Appeals). An update will be provided in the next newsletter.
Impact on the District of Columbia income tax
On October 13, 2022, the Office of Tax and Revenue issued OTR Notice 2022-07 on the taxability of Student Loan Forgiveness. The notice states that, since the District conforms to the Internal Revenue Code § 108(f)(5), to the extent a student loan is forgiven and the forgiveness is excluded from federal taxable income, the amount will also be excluded from District taxable income.
Impact on the Maryland income tax
On October 26, 2022, the Comptroller of Maryland issued a tax alert which describes the impact of student loan debt cancellation on Maryland individual income tax. The alert also provides information on the Maryland student loan debt relief tax credit.
Maryland SDAT Amends Property Tax Regulation on Depreciation of Personal Property
The Maryland Department of Assessments and Taxation adopted the proposed amendment to the regulation on the depreciation of personal property. The amendment includes defining the term ‘salvage value’ to mean the value of the personal property after all depreciation under this regulation has been applied. It further states that personal property may be depreciated to its salvage value, instead to 25% of the original cost. The amended regulation is effective October 31, 2022, and will have implications for personal property tax returns.